Leo's Gulf Liquors v. Lakhani

• Citation: 802 So.2d 337
• Decision Date: 05 September 2001
• Docket Number: No. 3D00-130.,3D00-130.
• Parties: LEO'S GULF LIQUORS, Appellant, v. Chandresh LAKHANI; Bhairavi Lakhani; Chan Expands, Inc.; Stuart M. Rotman, C.P.A.; Stuart M. Rotman, C.P.A., P.A.; Sy Chadroff, Esq. and Sy Chadroff, P.A., Appellees.
• Court: Court of Appeal of Florida (US)

802 So.2d 337

LEO'S GULF LIQUORS, Appellant, v. Chandresh LAKHANI; Bhairavi Lakhani; Chan Expands, Inc.; Stuart M. Rotman, C.P.A.; Stuart M. Rotman, C.P.A., P.A.; Sy Chadroff, Esq. and Sy Chadroff, P.A., Appellees.

No. 3D00-130.

District Court of Appeal of Florida, Third District.

September 5, 2001.

Certification Denied November 7, 2001.

Greenberg Traurig and Elliot B. Kula and Arthur J. England, Jr., Miami, for appellant.

Kaye, Ross and Timothy W. Ross, Miami; Lauri Waldman Ross, Miami; Wetherington, Klein & Hubbart and Phillip Hubbart, Miami; Fromberg, Perlow & Kornik, and Malcolm H. Fromberg, Aventura, for appellees.

Before GODERICH and SORONDO, JJ., and NESBITT, Senior Judge.

SORONDO, J.

Leo's Gulf Liquors, Inc. (plaintiff), appeals from the lower court's order granting all of defendants' motions to dismiss its complaint for "fraud on the court."

Plaintiff is a corporation that purchased a liquor store from seller, Chan Expands, Inc. Plaintiff has two officers and directors: Arturo Munder, its president, and Roy Lustig, fifty percent owner of the company and Munder's attorney. It initiated an action against Chan Expands and its owner, Chandresh "Chan" Lakhani, and Bhairavi Lakhani, his wife, as well as their accountant, Stuart Rotman, C.P.A. and Stuart Rotman, C.P.A., P.A. and their attorney, Sy Chadroff, and Sy Chadroff, P.A. for fraud in the inducement of the sale of the store and intentional and/or negligent misrepresentations as to the business and the value of its inventory. Plaintiff alleged that it purchased the store based on representations made by each of the defendants that the store grossed in excess of $2,000,000.00 annually. Additionally, plaintiff alleged that the sellers overstated the value of the inventory of the store by altering prices just prior to the sale and including items in the inventory that were unmarketable.

Defendants answered by denying the claims, and, as pertinent to our discussion, asserted an affirmative defense that the claimed damages were due to the fiscal mismanagement of the store by Munder, its manager after the sale, and not to any alleged misrepresentations by them. They further counterclaimed to collect on an unpaid promissory note for the balance of the purchase price.

Protracted discovery took place over approximately three years. The trial court ultimately had to appoint a special master to monitor the discovery. At their depositions, Munder and Lustig asserted that Chadroff represented both the seller and their company during the sale. They also testified concerning Munder's sales tax problems with the State of Florida, Department of Revenue (DOR), in connection with numerous liquor stores he ran prior to the sale at issue.

Defendants moved to dismiss the case on the basis that the plaintiff's principals committed fraud on the court. In a lengthy order, the trial court granted the motion. Plaintiff appeals.

The parties agree that the dismissal of a lawsuit for perpetrating a fraud on the court is reviewed under an abuse of discretion standard. See Mercer v. Raine, 443 So.2d 944 (Fla.1983)

; Hanono v. Murphy, 723 So.2d 892 (Fla. 3d DCA 1998); Savino v. Florida Drive In Theatre Mgmt., Inc., 697 So.2d 1011 (Fla. 4th DCA 1997). Accordingly, we are guided by the Florida Supreme Court's directions in Canakaris v. Canakaris, 382 So.2d 1197, 1203 (Fla. 1980):

In reviewing a true discretionary act, the appellate court must fully recognize the superior vantage point of the trial judge and should apply the "reasonableness" test to determine whether the trial judge abused his discretion. If reasonable men could differ as to the propriety of the action taken by the trial court, then the action is not unreasonable and there can be no finding of an abuse of discretion. The discretionary ruling of the trial judge should be disturbed only when his decision fails to satisfy this test of reasonableness.

The trial judge entered an eleven page "Order Granting All Defendants' Motion to Dismiss Plaintiff's Complaint for `Fraud on the Court,'" wherein he made extensive factual findings. These findings focus on two aspects of Munder and Lustig's claims that were untruthful or dishonest. We address each in turn.

I.

Plaintiff's initial complaint was filed on October 21, 1996, and presented claims against Chandresh Lakhani, Bhairavi Lakhani, Chan Expands, Inc., Stuart M. Rotman, C.P.A. and Stuart M. Rotman, C.P.A., P.A. Count 1 set forth a claim for "Fraud in the Inducement as to Business (Intentional Misrepresentation)"; count 2—"Negligent Misrepresentation as to Business"; count 3—"Fraud in the Inducement as to Inventory"; and count 4— "Action for Civil Theft." The complaint contained no claims against Sy Chadroff or his professional association, nor did it mention Chadroff in any way.

On April 3, 1997, plaintiff filed an amended complaint that included Sy Chadroff and Sy Chadroff, P.A. as defendants. Within the section entitled "Factual Allegations," the complaint alleges that "[d]efendants SY CHADROFF, ESQ., and SY CHADROFF, P.A. at all times material were counsel for Defendants CHAN EXPANDS, CHANDRESH LAKHANI, and BHAIRAVI LAKHANI." In response to Chadroff's successful motion to dismiss the negligent misrepresentation claim contained within count 2 of the amended complaint based on a lack of privity, plaintiff filed its second amended complaint on September 29, 1997. Within the section entitled, "Factual Allegations," plaintiff now alleged that "[d]efendants SY CHADROFF, ESQ., and SY CHADROFF, P.A. at all times material were counsel for Defendants CHAN EXPANDS, CHANDRESH LAKHANI, and BHAIRAVI, and also acted as counsel for Plaintiff at all times relevant hereto." (Emphasis added).

The trial court noted in its order of dismissal that extensive pre-suit correspondence established beyond question that Chadroff was representing Chan Expands and the Lakhanis, and that Lustig was representing Munder. In fact, in a letter addressed to Chadroff and dated June 12, 1996, Lustig makes reference to "my client" when referring to Munder. The letter threatens suit if the liquor store in question is not sold to Munder. Specifically, the letter states,

Chan Expands', Inc. failure to close under its agreement with my client shall force me to take whatever legal action that may be necessary in order to protect my client's interest in this matter, including but not limited to actions against both the interfering third parties and Chan Expands, Inc.

(Emphasis added). Lustig speaks of his client (Munder) and is clearly using a tone commonly directed at an adversary.

There was additional correspondence exchanged after the sale. On July 1, 1996, Lustig again wrote to Chadroff:

Your client's intentional misrepresentations was fraud in the inducement and at the very least both a civil and criminal violation. It is imperative that a resolution to this matter is reached this week because I have not [sic] intention to idly sit back and allow the Chans and their accountant to have perpetrated this fraud upon Arturo and I. Additionally, at the same time, we might as well address the issue of your client's inflation of the retail price as set forth in my letter of June 13, 1996.

(Emphasis added). Finally, on July 25, 1996, there is yet another letter from Lustig to Chadroff. The letter reads as follows:

Re: Settlement Negotiations

Leo's Gulf Liquors, Inc. purchase of Leo Gulf Liquors from Chan Expands, Inc.

Dear Tim and Sy:

Enclosed please find a preliminary draft of the proposed Complaint in the above referenced matter.

As previously discussed, I believe it would behoove your clients to consider my last offer of settlement prior to filing of a complaint. The ramifications, both civil and criminal, against your clients are enormous. An amicable settlement at this time with mutual releases is appropriate.

Please feel free to contact me in order to further discuss this matter.

(Emphasis added). These letters directly contradict plaintiff's claim in the second amended complaint that Chadroff represented them at all times relevant to the sale of the business in question. The letters further contradict the sworn deposition testimony of both Munder and Lustig, who testified that Chadroff was representing them in the transaction. Munder testified as follows:

A. When I learned that the store was for sale, I called Sy and from that day on Sy has been involved.

In my mind he was the one who gave me this information and he was my attorney as well from day one. To me its natural.

Q. From day one he was the attorney for both sides?

A. I don't know if both attorneys. My attorneys.

That's the way I saw him. As representing me and taking care of me.

Munder further testified in deposition that he only used Lustig for legal representation in real estate matters, and that he could not remember ever using him for anything else.¹

Lustig testified as follows during his deposition:

Q. Okay. Mr. Lustig, just so I understand it, when the contract was signed on June 19, 1996, in final form, is it your understanding that Sy Chadroff was both the attorney for the buyer and the attorney for the seller?

A. Absolutely; because I discussed it with Sy. I discussed it with Sy initially when the—the initial contract that he prepared came over with my name on it, that he knew that, in fact, I knew nothing about liquor law, knew nothing about what I was getting involved in on that end, and he was going to protect us and our side, as well as that we knew that he was doing transactions for Chan, as well.

Lustig's correspondence immediately before and after the June 19th closing date refutes his sworn testimony. The trial court concluded that both Munder and Lustig lied under oath at their respective depositions on the subject of who Chadroff represented in the sale of the liquor store.

II.

In response to the complaint and amended complaints filed by plaintiff, all defendants raised affirmative defenses. As pertinent...